In recent times, startups and financial servicing companies around the world have been sanctioned for breach of money laundering regulations. The use of digital platforms for the concealment of origin of funds obtained from illicit activities is also on the rise, which has necessitated the establishment of stringent regulations with respect to financial transactions.
On May 17, 2022, the President of the Federal Republic of Nigeria signed the Money Laundering (Prevention and Prohibition) Act, 2022 into law (the “Act”). The Act repeals The Money Laundering (Prohibition) Act, 2011.
The Act sets out a more comprehensive and up-to-date legal framework for the prevention and prohibition of money laundering in Nigeria.
In this article, we highlight some of the key provisions in the Act as a guide to ensure compliance.
Objectives of the Act
The objectives of the Act include strengthening and expanding the existing system for combating money laundering and related offences and making adequate provisions to prohibit money laundering activities.
Entities subject to the Act
The Act applies to all Financial Institutions (“FIs”) and Designated Non-Financial Businesses and Professions (“DFBPs”). FIs according to the Act include banks, corporates, or non-corporates carrying on the business of investment and securities, virtual asset service providers, bureau de changes, finance companies, and such other businesses as the Central Bank or other appropriate regulatory authorities may designate.
The DFBPs category appears to be broad and encompasses organizations operating in various industries including service providers and professionals, consultants, automotive dealers, businesses in the hospitality industry, supermarkets, and such other businesses and professions as may be designated by the Minister for Trade and Investment.
Salient Provisions in the Act
i. Limitation on cash payments: Individuals and corporates are required to make and accept cash payments exceeding a certain threshold through FIs. The threshold value for individuals is the sum of N5,000,000 or its equivalent, and the sum of N10,000,000 or its equivalent, in the case of a corporate. By implication, transactions exceeding this threshold are to be conducted mandatorily through FIs.
ii. Identification of customers: FIs and DFBPs are required to identify their customers, and persons purporting to act on behalf of their customers. FIs and DFBPs are also expected to undertake customer due diligence measures when establishing business relationships and carrying out transactions that involve wire transfers or where there is a suspicion of money laundering.
iii. Duty to report international transfer or transportation of funds, securities and cash: Transfer(s) of funds or securities to or from foreign countries by individuals or corporates exceeding US$10,000 or its equivalent are to be reported to the Nigerian Financial Intelligent Unit (“NFIU”), the Central Bank of Nigeria and/or the Securities and Exchange Commission (as the case may be) in writing within one day from the date of the transaction. Transportation of cash or negotiable instruments in excess of US$10,000 or its equivalent by individuals in or out of Nigeria are also required to be declared to the Nigerian Customs Service.
iv. Duty to report suspicious transactions: FIs and DFPBs are obligated to report any suspicious transaction within twenty-four (24) hours after such transaction and submit a detailed report of such suspicious transaction. Suspicious transactions according to the Act include transactions that are unjustifiably and unreasonably frequent or which in the opinion of the FI or DFPB involve the proceeds of a criminal activity, unlawful act, money-laundering, or terrorist financing.
v. Powers to stop transactions/block funds: The Act provides that the NFIU or the Economic and Financial Crimes Commission (EFCC) may place a stop order of seventy-two (72) hours (i.e stoppage period) on an account or transaction, if it is discovered to be involved in any unlawful act. Transactions or funds may be blocked in instances where it is not possible to ascertain the origin of the funds.
vi. Liability of directors and employees of FIs and DFBPs: Where funds are blocked by order of the court, due to an impossibility to ascertain its origins, the directors, and employees of FIs and DFBPs may become liable to criminal proceedings for offences arising from such transactions where there is evidence of a conspiracy with the owner of such funds.
vii. Virtual Assets: Virtual asset service providers are regarded as FI's by the Act. Interestingly, the Act also recognizes virtual assets as a medium of exchange and provides that virtual assets include any digital representation of value that can be used for payment or investment purposes.
viii. Enhanced due diligence for politically exposed persons: FI's and DNFB's are obligated to conduct enhanced due diligence and take reasonable measures to establish the source of wealth and source of funds of customers who fall within this category while establishing business relationships.
ix. Mandatory Disclosure by Legal Practitioners: The Act categorizes the legal profession as a DFBP and stipulates that the rule of attorney-client privilege and confidentiality will not apply to financial transactions that relate to the purchase or sale of property and or business, and the management of money, trusts and assets belonging to clients.
x. Identification and Assessment of New Products, Technologies, and Business Practices: FIs and DFBPs are expected to identify and assess new products and business practices for money laundering and terrorism financing risks which may arise from the development and use of these products, and or technologies and implement measures to manage and mitigate those risks.
xi. Power to obtain records: A competent authority, which includes the NFIU, the SCUML and other regulatory authorities as designated by the Act may demand, obtain, and inspect the books and records of an FI or DFBP to confirm compliance with the provisions of this Act.
xii. Penalties for non-compliance: An individual who contravenes the provisions of the Act is liable on conviction to imprisonment for a minimum term of four (4) years, and a maximum term of fourteen (14) years or a fine of not less than five times the value of the proceeds of the crime or both. A corporate body on the other hand is liable on conviction to a fine of not less than five times the value of the funds or the properties acquired as a result of the offence committed, and their licenses or certificates may also be withdrawn or revoked by the appropriate regulators.
The enactment of the Act is commendable as it seeks to ensure prudent financial transactions by entities and individuals. The importance of compliance with the Act, can also not be overemphasized. Therefore it is necessary that FIs and DFBPs implement effective compliance strategies to ensure adherence with the Act in order to avoid regulatory sanctions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.